The CBDT has issued Circular No. 3/2015 dated 12.02.2015 in which it has issued a clarification regarding the expression “amounts not deductible” under section 40(a)(i) of the Income-tax Act, 1961. The CBDT has referred to its earlier Instruction No. 02/2014 dated 26.02.2014 and clarified that for the purpose of making disallowance of “other sum chargeable” under section 40(a)(i) of the Act, the appropriate portion of the sum which is chargeable to tax under the Act shall form the basis of such disallowance and shall be the same as determined by the AO having jurisdiction for the purpose of section 195(1) of the Act. Further, where determination of “other sum chargeable” has been made under sub-sections (2), (3) or (7) of section 195 of the Act, such a determination will form the basis for disallowance, if any, under section 40(a)(i) of the Act.
[…] CBDT has issued a letter dated 26.10.2016 in which it has drawn attention to its Circular No 3/2015 dated 12.2.2015. In the said Circular it was clarified that for the purpose of making disallowance of “other sums […]